• Full-year FY21 core losses narrowed 77% yoy to RM201m, but missed our previous forecast (RM68m) and the consensus (RM113m)
• 4QFY21 results dragged down by higher costs and weaker associate profits, despite revenue growth
• Reiterate Sell Ratingand SOTP-derived Target Price of RM0.10

FY21 Results Missed Expectations

SAPE ended 4QFY21 w ith a headline loss of RM216m, w ith a smaller core loss of RM178m after stripping out the forex loss. FY21 core losses narrow ed 77% yoy to RM201m (FY20: RM875m loss), despite revenue falling by 17%, mainly driven by its ongoing cost rationalization and low er interest expenses. Cash holdings w as down 37% yoy although operating cash flow improved by 76% (FY21: RM170m). How ever, this was not sufficient to cover even the interest repayment of RM422m, let alone capex of RM170m.

Higher Costs Dragged on 4QFY21

Despite revenue rising 9% qoq, 4QFY21 saw the EBITDA margin fall 9ppts, dragged dow n by higher costs relating to COVID-19 and the monsoon quarter. Its JV operation w as also affected by higher COVID-related costs as it reported a weaker RM15m profit w ith Diamante and Topazio only partly w orking during the quarter. Both vessels are in the midst of bidding for a 3-year contract. The number of operational rigs remain flat qoq at 6 units, and w e expect to see an additional rig restarting in 1QFY22.

No Near-term Earnings Excitement From Recent Contract Wins

SAPE continued to w in contracts to replenish its order book, particularly on the E&C front. SAPE also announced that another RM1bn of contracts have been secured adding to the current order book of RM13.7bn. How ever, the market isn’t likely to view this optimistically as competition may have been even fiercer to secure these jobs amid the current challenging environment, leading to even thinner margins. Moreover, the early phase of contract execution often has lower margins, so we do not expect any excitement in earnings over the near term.

Not Attractive – Reiterate Sell

We narrow our forecast losses to factor in our higher Brent oil price assumption ranging betw een US$60-65/bbl. SAPE remains unattractive due to a lack of near-term catalysts. After completing its RM10bn debt restructuring, which has been extended by a further 7 years, the checklist-before-a-recovery remains lengthy, with its stubbornly high cost base being the biggest issue, along w ith its high net gearing level of 1.1x. We reiterate our Sell rating and 12-month SOTP target price of RM0.10.

Source: Affin Hwang Research - 28 Apr 2021